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Law Society and CLLS update Q&A on Market Abuse Regulation

The Law Society and the City of London Law Society Company Law Committees have updated their Q&A on the Market Abuse Regulation (the “Q&A”) (This follows ESMA’s update to its Q&A in July.)

The Law Society / CLLS Q&A is not official guidance or advice, but is designed to assist in interpreting areas of uncertainty relating to MAR.

Under article 19 of the Market Abuse Regulation (“MAR”), a person discharging managerial responsibilities of an issuer (a “PDMR”) (such as one of its directors) must notify the issuer and the Financial Conduct Authority (FCA) whenever s/he transacts in the issuer’s financial instruments.

Likewise, a person closely associated with a PDMR (a “PCA”) must notify an issuer and the FCA when transacting in the issuer’s financial instruments.

MAR sets out certain circumstances in which a legal person (such as a company) will be a PCA. This includes in the following circumstances (among others):

Where a PDMR of the issuer also discharges managerial responsibilities of the legal person.
ESMA has confirmed that “discharging managerial responsibilities” in this context means taking part in or influencing the legal person’s decisions to transact in the issuer’s financial instruments.
The Q&A give the example of a director of an AIM company (company A) who is also a PDMR of another company (company B). Previously, the Q&A had suggested that company B would be a PCA only if the director was company B’s sole director, had a right to appoint a majority of company B’s board, or (broadly) had control over company B’s management decisions.
In response to ESMA’s update, the Q&A now state that company B will not be a PCA (and so will not need to notify company B or the FCA of transactions in company A’s financial instruments) provided the director recuses her-/himself from board meetings of company B that relate to company A or where company A is discussed and does not “otherwise exert any influence” on company B’s decisions to transact in company A’s financial instruments.
Although the Q&A give the example of a director of an AIM company, the same principles should apply to any PDMR (whether or not a director) of any issuer (whether admitted to a multilateral trading facility, such as AIM, or a regulated market, such as the LSE Main Market).

Where a PDMR of the issuer controls the legal person.
MAR does not define “control” for this purpose. The updated Q&A suggest the word “control” should be given its ordinary meaning of controlling a “majority of voting rights” in the legal person.

Issuers that are subject to MAR should consider updating their annual process of reviewing PCAs to apply the new tests set out in the Q&A. Boards may also wish to consider dovetailing this review with their annual procedure for authorising directors’ situational conflicts of interest.